New record levels reached by shares on Wall Street

Stock prices rose sharply in New York in response to better-than-expected economic data today.

July may have ended with the damp squib of the Dow closing down on the last day of the month, but nevertheless July was a very strong month for US stocks, the best July since 2010 in fact for the Dow and S&P 500 both. August has begun at a rate of knots, with the S&P 500 finally breaking above 1700, something we’ve never seen happen before.

Most of the major economic data released today has been very upbeat and, combined with the dovish tone struck by the Fed yesterday, that has contributed to very bouyant share prices. By early afternoon in New York the Dow was standing at 15,610, up 110 points or 0.71%, while the S&P gained more than 1% and the NASDAQ 100 rose 0.8%.

There was nothing in the Federal Open Market Committee’s statement yesterday to suggest they rate the US economy as so strong that tapering in September is a given. The strength of today’s economic data may support arguments in that direction, but most of that strength was related to manufacturing. The two metrics the Fed is most interested in are employment and inflation. The former got a big boost today in the shape of falling jobless claims but the latter is bubbling along below target – we have more data on both tomorrow, with the PCE price index and the hugely-important employment situation report.

Initial jobless claims dropped last week to 326,000, a fall of 19,000. Like last week’s jobless data, the result is somewhat clouded by July being the month in which car manufacturers have a lot of factory downtime, so it would be imprudent to read too much into the figures, but it will likely give a small upwards nudge to expectations heading into tomorrow's employment report.

Manufacturing is looking up, with big advances reported in July from June. Markit’s PMI manufacturing survey climbed to 53.7 from June’s 51.9, indicating that growth in the sector is accelerating.

The ISM manufacturing index was in agreement, with a reading of 55.4 for July, the best in a couple of years, up from June’s 50.9. This makes July the strongest level seen in over two years, with high readings for the new orders, output and employment components.

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